Natural gas transportation price regulation and the dash for gas

Abstract

The large reduction in natural gas prices due to horizontal fracturing has led to an unprecedented expansion in natural gas use for electricity generation. Another innovation that helped facilitate the expansion of natural gas electricity generation is the deregulation of natural gas pipeline transportation. Previous to June 2008, the price for transacting space in natural gas pipelines was set by the Federal Energy Regulatory Commission (FERC). FERC Order 712 allowed transactions under one year in duration, generally known as the secondary market, to transact at market prices. This regulatory innovation should facilitate natural gas power plants in procuring natural gas and lead to expanded generation. This analysis finds an average 2 percentage point increase in natural gas capacity factors that is attributable to FERC Order 712, and that the impact is larger in places with relatively little pipeline capacity.